Clear Path for AI Software In Real Estate

The Real Estate Espresso Podcast

Clear Path for AI Software In Real Estate

Spotify Google Podcast Apple Podcast Subscribe via RSS Leave a Review

Clear Path for AI Software In Real Estate

Welcome to The Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host Victor Menasce. On today’s show we’re talking about the use of computer algorithms. Computers are great at processing vast amounts of data and making either recommendations or decisions based on that data. AI is even better at that process.

Yet, somehow consumer groups feel like landlords have an advantage when it comes to data, and they should not have the right to use that market data when it comes to setting rates for a rental property. Those who don’t understand technology often target the use of technology as the culprit. This is the same technology that helps shoppers find a product online at the lowest price. It surveys the market and then reports the results. What you do with the data is not a function of the technology. Do you buy the product from a supplier you trust with a good reputation or do you buy at the lowest price no matter what?

Well, it was a rate-setting lawsuit against RealPage. There were a series in fact of anti-trust lawsuits alleging that the company’s algorithm amounted to a price fixing scheme among landlords leading to artificially inflated rental prices for millions of tenants across the United States. We reported on this lawsuit a few months ago here on this show. So here’s a breakdown of the key accusations.

Number one is algorithmic collusion. The core accusation is that RealPage’s revenue management software non-public, sensitive data from competing landlords, but then uses that data to generate recommended rental prices. Prosecutors and plaintiffs allege that by using this common algorithm and sharing data, landlords effectively coordinate pricing decisions rather than competing independently. The lawsuits claim that this system reduces competition in the rental market.

The Department of Justice lawsuit also alleges that RealPage has unlawfully maintained a monopoly in the market for commercial revenue management software for multi-family dwellings, holding about an 80% market share.

So there’s a number of parties involved, of course. There’s RealPage, the U.S. Department of Justice, several state attorneys general, including California, Colorado, Connecticut, Illinois, Massachusetts, Maryland, Minnesota, North Carolina, Oregon, Tennessee, and Washington have all filed their own lawsuits or joined the Department of Justice complaint. And then there are the tenant class action lawsuits. Several major landlords, including Greystar, Livecore’, which is part of Blackstone, Camden Property Trust, Cushman and Wakefield, Courtland Management, have been added as defendants to the Department of Justice and state lawsuits.

The outcomes of these cases could have significant implications for how technology and algorithms are used to set prices in various industries, particularly those in high market concentration. The latest legislation to pass through the US Congress has a federal statute that aims to block states and local governments from oversight of AI and automated decision systems for a period of up to 10 years. This will not block claims of anti-competitive behavior. If successfully passed, this would give companies like Yardi and RealPage and numerous others a clear path to use their algorithms for the benefit of making pricing decisions based on supply and demand.

If the data is being used for landlords to collude, well then, that would constitute a cartel which violates antitrust laws. But the use of data for dynamic pricing both up and down does not constitute collusion by itself. The new legislation keeps the playing field level favoring the development of technology to improve market efficiency. The states should not be blocking the use of technology. The fact is these data sets exist. Whether a landlord uses a software tool for dynamic pricing or whether they use a printed report from a dot-matrix printer to make pricing decisions, the effect is the same. The latest federal legislation makes it clear that a patchwork of legislation that bars the use of technology is not the answer.

As you think about that, have an awesome rest of your day. Go make some great things happen! We’ll talk to you again tomorrow.